[FAQs] Income Tax Returns (ITR) | Capital Gains Computation – Shares | Property | Buy-back Rules

According to Circular No. 6/2016, dated 29-2-2016, the CBDT has instructed the Assessing Officers to consider the following while deciding whether the surplus generated from the sale of listed shares or other securities is taxable as capital gains or business income:

• • Where the assessee himself, irrespective of the period of holding of listed shares and securities, opts to treat them as stock-in-trade, the income arising from the transfer of such shares/securities would be treated as its business income.
  • Regarding listed shares and securities held for more than 12 months immediately preceding the date of their transfer, if the assessee desires to treat the income arising from the transfer thereof as capital gains, the same shall not be put to dispute by the Assessing Officer. However, once taken by the assessee in a particular Assessment Year, this stand shall remain applicable in subsequent Assessment Years. The taxpayer shall not be allowed to adopt a different/contrary stand in this regard in subsequent years.

The CBDT has formulated the above principles to reduce litigation and maintain consistency in treating income derived from the transfer of shares and securities. All the relevant provisions of the Act shall continue to apply to the transactions involving the transfer of shares and securities. 

The CBDT [1] has decided that the income arising from the transfer of unlisted shares would be considered under the head’ Capital Gains’, irrespective of the holding period, to avoid disputes/litigation and maintain a uniform approach.

Intra-day trading is considered a speculative business; the resultant gain or loss would be a speculative gain or loss. Speculative gain is taxed at normal rates, and speculative losses can only be set off against speculative profit.

The benefit of the maximum exemption limit shall be available from long-term capital gains taxable under Section 112A. However, the assessee cannot take the benefit of the deduction available under Chapter VI-A. The taxable income and tax liability thereon shall be calculated as follows:

The Finance Act 2018 has allowed exemption from the gains made on listed shares/specified units up to January 31, 2018, by introducing a grandfathering mechanism for the computation of long-term capital gains for these shares. With respect to Assessment Year 2020-21, the CBDT has clarified [2] that the scrip-wise details are required to be filled up for those shares/units that are eligible for grandfathering. Following the press release, we may conclude that the scrip-wise details are not required in income tax return forms for AY 2025-26 to compute gains that are not eligible for grandfathering.

Schedule CG of ITR requires the assessee to furnish details relating to the immovable property transferred during the year. To track all the transactions related to the sale of immovable properties, the schedule seeks the buyer’s information, such as the buyer’s name, PAN/Aadhaar No., address of the property, date of purchase and sale of land/building, country and zip code, etc.

It is mandatory to furnish these details regardless of whether the immovable property sold is situated in India or outside India. However, quoting the buyer’s PAN is mandatory only if tax is deducted under section 194-IA or is mentioned in the documents related to the sale of the property.

The Finance (No. 2) Act, 2024, has provided a uniform tax rate of 12.5% on long-term capital gain arising from the transfer of any capital asset on or after 23-07-2024. Where the capital asset is transferred on or before 22-07-2024, the long-term capital gain shall be taxable at the rate of 20% or 10% (in case of certain securities, including listed shares).

Additionally, the exemption limit under Section 112A has been increased from Rs. 1,00,000 to Rs. 1,25,000 with effect from 23-07-2024. While computing this limit, the total long-term capital gains from all transfers during the period 01-04-2024 to 31-03-2025 must be aggregated.

As a result, gains from listed shares sold on or before 22-07-2024 will be taxed at 10% on the amount exceeding Rs. 1,25,000, and gains from sales on or after 23-07-2024 will be taxed at 12.5%.

Until September 30, 2024, when a domestic company bought back its own shares, it was required to pay additional tax under Section 115QA on the income distributed. In that case, the amount received by the shareholder was exempt under Section 10(34A), and the shareholder had no further tax liability. The Finance (No. 2) Act, 2024, changed this approach. Effective from 01-10-2024, the entire consideration received by shareholders on the buy-back of shares by a domestic company will be taxed in the hands of the shareholders as a dividend under Section 2(22)(f). Hence, the amount received by Mr. X shall be taxable under the head “Income from Other Sources”.

Mr. Raj sold his residential house after holding it for more than 24 months; hence, the gains would be treated as long-term capital gain. The Finance (No. 2) Act, 2024, introduced a uniform tax rate of 12.5% without indexation for all taxpayers on long-term capital assets transferred on or after 23-07-2024. However, for the transition period, a grandfathering provision allows resident individuals and resident HUFs to choose between the old tax rate (20% with indexation) and the new tax rate (12.5% without indexation) when calculating long-term capital gains on land or buildings acquired on or before 22-07-2024.

The computation of capital gain from the sale of the house during the financial year 2024-25 shall be as follows: 

Mr. Rajesh can opt to compute long-term capital gain and pay tax on it as per the old regime (after claiming the indexation of the cost of acquisition). This will result in a tax saving of Rs. 34,620 in his case. 

The grandfathering provision has the following implications:

(a) It applies only to resident individuals and resident Hindu Undivided Families (HUFs). A non-resident person, company, partnership firm or any other assessee is not eligible for this benefit.

(b) It applies only to the transfer of a long-term capital asset, being land or a building or both. This provision does not cover other long-term capital assets, such as gold or bullion.

(c) The land or building must have been acquired on or before 22-07-2024 to qualify for the grandfathering benefit.

(d) The provision is applicable if the tax on long-term capital gains from the transfer of such land or building computed under the new LTCG regime exceeds the tax computed under the old LTCG regime.

(e) If the amount of tax under the new regime exceeds the amount of tax under the old regime, the excess amount shall be ignored.

In short, resident individuals and HUFs can choose to pay the lower tax from two methods:

• • Option A (Pre-amended law): Tax at 20% with indexation (e.g., tax on Rs. 5 lakh LTCG).
  • Option B (New law): Tax at 12.5% without indexation (e.g., tax on Rs. 15 lakh LTCG).

The grandfathering provision allows the relief by providing that “such excess shall be ignored”, which clearly indicates that if the tax computed under the new rate, i.e., 12.5% without indexation, exceeds the tax payable under the pre-amendment provisions, i.e., 20% with indexation, the excess amount calculated as per the new rate is to be ignored. The net effect is that only the lower tax computed as per the amended or pre-amended provisions shall be payable. Thus, this grandfathering provision offers relief only in terms of tax liability, not in terms of computation methodology. Accordingly, LTCGs shall be computed and added to the total income without applying the indexation benefit, as provided by the amended law. As the long-term capital gain, computed as per the new provision, is added to the total income, and in case it exceeds the surcharge threshold limit, the surcharge is charged by the utility. In other words, though the assessee can save the tax liability in respect of the capital gains due to the grandfathering provisions, a surcharge shall be levied as it depends upon the quantum of the total income. Thus, the surcharge in Mr. A’s case is not a result of any error in the ITR utility.

[1] Letter F.No.225/12/2016/ITA.II, dated May 2, 2016

[2] Press Release, dated 26-09-2020